Gujarat's GIFT City | India's big fintech bet

On the stage is a huge bell, decorated with orchids and marigolds. Seated next to it are men in sharp suits, delivering equally sharp speeches. As soon as the clock strikes 15:40, they all rise and ring the ceremonial bell, closing the first session of the SGX-Nifty, now rechristened GIFT Nifty. Based on the National Stock Exchange (NSE)’s Nifty index, it is a cross-border initiative connecting the capital markets of India and Singapore. In the packed banquet hall of the GIFT City Club, financial experts, consultants and traders, most of whom have flown in from Mumbai and Singapore, listen to speeches and presentations that elaborate how the Gujarat International Finance Tec (GIFT) City—located in the state’s Gandhinagar district—is bringing home opportunities for India as an offshore financial centre (OFC).Step outside the swanky club, and you find yourself staring at the future. Shiny, tarred roads are lined with towering buildings, and equally tall construction cranes on projects that are work-in-progress. Approaching the venue from the airport, one passes several under-construction flyovers and elevated metro rails, until the cluster of 14 modish buildings emerges as an oasis in the middle of a deserted landscape. KPMG, one of the ‘Big Four’ consulting firms that 30-something Deven Jain (name changed) works with, has leased an office in one of these buildings.That afternoon on July 3, sitting in a corner of the hall, the Indian Institute of Management (IIM) graduate is intently processing the numbers. NSE IX-SGX GIFT Connect commenced in the morning with $8.05 billion (Rs 66,090 crore) open interest in Nifty futures and over $1.04 bn (Rs 8,540 crore) in Nifty options (futures and options are financial contracts used in the stock market); the first session ended with a turnover of $1.13 bn (Rs 9,280 crore). Later, chatting over a cup of black coffee, the Mumbai-based consultant repeats the statement that was frequently made on the stage that day—that the shifting of the Singapore Stock Exchange, or SGX Nifty, from the island city-state to the NSE International Exchange (NSE IX) in GIFT City will bring along a lot more opportunities for India’s first and only International Financial Services Centre (IFSC). Tapan Ray, managing director, GIFT City, echoes the sentiment. “The extension of trading hours and exclusive trading of US dollar-denominated Nifty derivatives on NSE IX,” he explains, “will attract discerning global investors for seamless access to global markets.” What’s special about GIFT City?A special economic zone (SEZ) conceived in 2007, GIFT City was notified as an IFSC in 2015 to attract entities operating in the domestic and global financial services sector that typically park their funds in offshore tax havens like Singapore, Hong Kong and Dubai. The past few months have seen several high-profile companies come calling. During Prime Minister Narendra Modi’s visit to the US in June, Google CEO Sundar Pichai announced that the IT giant will set up its global financial technology, or fintech, hub in GIFT City, a dream project of the prime minister’s from the days he was the chief minister of the state.Several years in the works, it was only in 2020 that GIFT City took off, with the formation of the International Financial Services Centres Authority (IFSCA), a unified statutory body for the development and regulation of financial products, services and institutions within its precincts. Prior to this, any entity wanting to set up an office here had to seek separate permissions from myriad financial watchdogs—the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Pension Fund Regulatory and Development Authority (PFRDA) and the Insurance Regulatory and Development Authority (IRDAI)—that regulated business in the IFSC.“The setting up of the IFSCA brought clarity in regulations,” says a fund manager who set up shop here a year ago. “It was the turning point after which financial institutions started looking at GIFT IFSC seriously. Earlier, it was a red tape-ridden process that few wanted to endure, when Dubai and Singapore offered much more ease.” Per Dipesh Shah, executive director of the IFSCA, GIFT IFSC is getting good traction with various domestic and international institutions, which are making it their base for international financial services. Most of the buildings are getting occupied; Morgan Stanley has recently received approvals to start operations. PM Modi is personally overseeing developments, speaking about it at international events and inviting corporates to move business here. Several international conferences under India’s G20 presidency have also been hosted at GIFT City, including the high-profile gathering of finance ministers and central bank governors in mid-July.Spread over 886 acres, GIFT City comprises a 261-acre multi-service IFSC & SEZ besides a 625-acre exclusive Domestic Tariff Area (DTA) meant for domestic companies and subject to Indian laws and regulations. The plan is to develop 62 million sq. feet of built-up area, of which 67 per cent would be commercial, 22 per cent residential and 11 per cent social space. Of the 41.54 mn sq. ft earmarked for commercial use, official data released by GIFT claims, 24 mn sq. ft, or 58 per cent, has already been “allotted”, nearly half of it in just the past three years. At present, 4 mn sq. ft of built-up area is operational and 9 mn sq. ft is under construction. Over 400 entities have leased space in this built-up area within the IFSC & SEZ and 70 more in the DTA, with 35 fintech entities already operational. So are 33 international banking units with a cumulative asset size of $36.5 bn (Rs 2.99 lakh crore) and 63 fund management companies with $14.6 bn (Rs 1.19 lakh crore) committed capital. The regional headquarters of the New Development Bank—a multilateral bank developed by the BRICS states—is also coming up at GIFT. Apart from Google, other companies that have taken space here include IBM, Oracle, Maxim Integrated, TCS and Cybage. To provide financial, legal and other consultation services, firms like PricewaterhouseCoopers (PwC), EY, KPMG, Cyril Amarchand Mangaldas and Grant Thornton Bharat have set up shop.So what brings companies and institutions to GIFT IFSC? The offerings are compelling—100 per cent tax exemption for 10 years, no goods and services tax (GST) on services received and transactions carried out in IFSC, exemptions from stamp duty and taxes on security or commodity transactions, and state subsidies on lease rentals, electricity and PF contributions, to list a few. With the infrastructure push and policy support to boot, the Union government is betting big on GIFT City to realise the country’s fintech potential, positioning it as a global financial and IT services hub to rival Singapore, Hong Kong and Dubai. A June 2021 paper by PwC states that the presence of a unified regulatory authority, tie-ups with international regulators and financial institutions, and the ability to issue licences and provide tax incentives to fintech companies are some of the policy-backed advantages of GIFT City over the country’s other commercial hubs like Mumbai and Bengaluru.GIFT also aspires to emerge as the hub of shipping contracts, since the ship-breaking industry at Alang in Gujarat’s Bhavnagar district is among the largest globally. Under the state government’s ambitious Gujarat Maritime Cluster (GMC) Development Scheme, the fledgling ship-building industry is also expected to take off soon. GMC intends to develop a “maritime business ecosystem for shipping businesses to operate anywhere in the world, a one-stop solution for shipping players, logistics service providers and relevant government regulatory agencies, all housed in GIFT City”, according to the GMC website. What’s more, Gandhinagar is wooing start-ups too. An incubation centre has been recently set up, and GIFT City is attracting international venture capital funds through the global banks that have opened their offices here. In fact, less than a week after the California-headquartered Silicon Valley Bank collapsed in mid-March, the Union minister of state for electronics and information technology Rajeev Chandrasekhar had claimed that of the more than $1 billion (Rs 8,210 crore) deposits of the Indian start-ups parked in it, about $200 mn (Rs 1,640 crore) had moved to GIFT IFSC.Can GIFT City become a global financial hub?The jury is still out on that, despite the all-around excitement. There are several reasons for this scepticism, and the long gestation period—typical of such projects—is not one of them. Rather it is whether it can compete with Mumbai, Bengaluru, Gurugram and Hyderabad, the Indian cities that already have established fintech ecosystems, let alone the global peer it aspires to be (see Tough Competition). This concern stems from the fact that highly-skilled human resource drifts towards the lifestyle these urban hubs offer, which sleepy Gandhinagar cannot provide, not to mention liquor prohibition in Gujarat.Though Shah claims the existing buildings can employ around 20,000 people, those working here confide that a majority of the offices are vacant. Shah disputes it. “IFSC offices,” he says, for instance, “share the tower with Bank of America, which has taken up space from the 4th to the 27th floor. Some 2,400 people work here and I see the offices buzzing every day.”But while the money may move here, attracting specialised local talent will be a challenge for start-ups. The PwC paper cited earlier raises this very concern: “Unlike IT giants that hire their workforce in large numbers and have robust infrastructure to train their employees before deploying them across the country, the employment process in start-ups is very narrow. They prefer to hire locally to retain talent and avoid additional costs such as relocation.” Several fund managers that india today spoke to also point to the 10-year tax holiday, which they claim is not enough. “Funds cannot be parked in multiple offshore places. It takes several years of confidence, consistency and credibility to establish offices in an IFSC. For us to shift existing offices from Singapore and Dubai to Gandhinagar, clients demand security as much as tax holidays. What if there is a change in the central government, or another prime minister does not renew these tax holidays?” asks a fund manager who specialises in managing family offices, one of the GIFT City’s targets announced recently. Despite such apprehensions, however, he says, most mid- and large-sized fund managers have taken up token space in GIFT.On the other hand, the region’s IT industry, being cajoled by the authorities to set up their offices in GIFT DTA, refuses to bite the bullet, even for the sake of tokenism. Though GIFT officials claim the DTA’s reliable infrastructure and ecosystem, with proximity to the IFSC & SEZ, are a great draw, a member of an Ahmedabad-based business association argues that in the absence of tax holidays in the DTA, not much differentiates it from the available office space in the city. “Local IT players are mostly MSMEs with limited budgets. Getting staff to travel 40 km daily from Ahmedabad does not make sense.”A Mumbai-based fund manager, who specialises in managing Japanese, Korean and Taiwanese investors, claims international companies are “petrified” of Indian regulators, the retrospective changes in tax laws having put them off before. “GIFT has potential, but it will take years of confidence-building for corporations to genuinely buy into the concept,” he says. “Currently, most have come in due to personal push by the PMO or for the sake of their other projects in the country.” Jain, too, believes it will take years for the IFSC to come into its own. “My wife has a career in Mumbai, and my children too would never agree to move here. Till families move here for good, GIFT will be relegated to a back office of these big brands,” says Jain. C-suite executives and senior managers, he adds, choose to work from elsewhere, flying in for just a few days a week. “People who make money,” he explains, “aspire to live in good places that offer a wholesome lifestyle. All dots need to be connected.”Well, ‘connecting the dots’ is exactly what has been on the government’s agenda, even if its pace leaves much to be desired. Swanky gated communities with the latest amenities, surrounded by restaurants, movie theatres, state-of-the-art health facilities and international education—all on the banks of the Sabarmati—make it a complete GIFT package. “Some of the leading realtors are constructing their signature infrastructure here,” says Shah. In the 2022 Union Budget, finance minister Nirmala Sitharaman announced that permission has been given to “world-class foreign universities” to set up campuses in GIFT City. These universities are free from domestic regulations. At least two Australian varsities—Deakin University and the University of Wollongong—will commence academic sessions at GIFT City in 2024.That said, most of the construction is still under way. Over the past decade, 330 affordable houses were built exclusively for the GIFT City employees to buy. They remained vacant until being put up for sale in the open market three years ago. Recently, the urban planning of the surrounding four villages was handed over to HCP, the architect Biman Patel’s firm, who has been associated with PM Modi for over two decades and has overseen some grand redevelopment projects like the Central Vista in New Delhi.But as a consultant at one of the top firms, who refused to move to Gandhinagar despite a higher pay package, says, such “patchwork” does not make a substantive whole. “Diversity of ideas and opportunities need to organically blossom so that talent naturally gravitates here,” he says. “For GIFT City to grow, Ahmedabad and Gandhinagar need to develop as cosmopolitan hubs like Mumbai and Bengaluru.” And that is still some distance away.Edited By: Arindam MukherjeePublished On: Aug 11, 2023Trending Reel

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